Time Running Out For “Portability” Election

An important recent change in the estate tax law provided an opportunity to surviving spouses, some of whom have a “grace period” until December 31, 2014 by which they can take advantage.

IRS issued a fatwah earlier this year regarding estates of decedents who died before January 1, 2014, the total value of which falls below the dollar threshold for having to file an estate tax return, and whose surviving spouse still wants to make a “portability” election.  That election allows the survivor to apply the decedent’s unused lifetime exclusion amount to cover the surviving spouse’s own transfers during life and at death.  To make such an election, however, one of the requirements is that the decedent’s estate must file Form 706 (the Federal estate tax return) filed within the time prescribed by law – 9 months after the date of death plus extension.

IRS has graciously allowed more time – until December 31, 2014 – for the tax return filing with the appropriate election in cases where the original due date was missed.

And in yet another Tax Court decision on the subject, the Court has once again reiterated that the law provides for certain limitations on the deductibility of expenses related to rental property when the owner’s personal use exceeds an allowable level.

In the case of Mark A. Van Malssen and Patricia D. Kiley, the Court reminds us that where an individual owns a vacation hone or a dwelling unit and uses it for both personal and rental purposes, deduction of expenses is limited, except for those expenses which are deductible without regard to business use of the property – such as mortgage interest and property taxes.

Remember that for any tax year in which the owner uses the rented vacation home for personal purposes, or rents it out for less than a fair rental value, the owner’s deduction for maintenance, utilities, depreciation, etc. cannot exceed the percentage of those total expenses for the year attributable to the rental period.  Further, if a taxpayer who rents out a dwelling unit also uses it as a residence, the deductions for business use of the home (other than, generally, mortgage interest and real estate taxes) are limited to net income from the rental activity.

A home is used as a residence in any tax year in which the owner’s use of the unit (or a portion of it) for personal purposes exceeds the longer of (1) 14 days, or (2) 10% of the period of rental use.

And finally, this week, comes good news from the Tax Court for those folks who are just downright mistreated by the mean and nasty Revenooers.  In the Antioco case, it seems that IRS Appeals Officer Owyang just didn’t behave very nicely – indeed, his behavior included intimidating and berating  Ms. Antioco, a 72 year old woman who cares for her 97 year old mother, as well as disregarding instructions from the Court.  After dealing with the IRS for about two years on her own, Ms. Antioco was scared enough by Owyang to hire an attorney to represent her, to whom she paid over $40 grand!  She thought the government should reimburse her for this expenditure, which would have been needless had Owyang been a bit more gentlemanly.

And indeed, the Court agreed!

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He may be reached at 831-7288, welcomes comments at jquinn@ashleyquinncpas.com, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.

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